How to Get Out of Debt

Though it is not a topic that many like to talk about, everyone has some sort of debt. It affects the old, rich and even the poor. To build a future, a person must analyze their financial situation. Making positive long-term financial changes are essential, and an individual must realize how they got into debt in the first place.

Learning One's Relationship With Money

Start by making a list of all the money owed. Next, make a list of all the money spent. Lastly, compare the two lists. Do you see allot of frivolous spending on fast food restaurants and gourmet coffees? Some will find that a lot of their money is going to doctor bills and other medical emergencies. Then there are home repairs to consider. Use the list to gain insight into personal spending habits. Everyone has a relationship with money; however, not all relationships are healthy.

Tracking Spending Habits

Many people have no clue how much money they spend on groceries, transportation costs, and personal items. It is important to set aside time each week to determine expenditures. Those who avoid tracking where their money is going will be in danger of making the same mistakes again. Figure the net monthly income and average spending. This should include things like mortgage, insurance, utilities, loans, credit cards and health care. Be prepared as the numbers may be startling. However, this is the first step in making a positive change.

Ways to Lower Your Debt

There are numerous ways to reduce expenses to help reduce the debt load. Refinancing is an excellent option for those who have both a home and car. Loans can be consolidated into one, affordable payment. Also, it is possible to renegotiate payment terms with many lenders.

Refinancing
Refinancing is only a good idea if a person plans on being in the home long term. They should at least be there long enough to recoup their transaction fees. Refinancing the mortgage to a lower rate is a great way to reduce the overall monthly outgoing debt.
Consolidation
Those who have equity in their home may want to try a debt consolidation loan. This can help to replace credit card and other high-interest debts with a low-interest loan. Consolidating debts with a home equity loan makes the new loan a secured debt. The house becomes the collateral for the new loan. It is not as risky for the lender, but it is more of a risk for the borrower. Consolidation will lower the overall monthly obligation, but the total debt load has not decreased. Merely the way the debts are being paid off has changed. A big mistake is to charge up credit cards again and take on new debt. This will put a person right back where they started financially.
Renegotiating Terms
Many credit card companies are willing to negotiate new terms for their customers. This is especially true of customers that have fallen on hard times. There are some companies that are easier to work with than others. Making a simple phone call to customer service can lower credit card rates. Be sure to make it known how long the card has been opened and in good standing. If they won’t help, then try a balance transfer option that gives zero percent interest. The average success rate of a rate-reduction from credit card companies is around 56 percent. According to a survey, most people save as much as 30 percent of their overall bill.

Pay Down All Credit Cards

Many people are eager to wipe away all debt. However, credit card debt should be paid off before car loans or other big ticket items. The interest rate on credit cards is always higher than a mortgage. Plus, a mortgage is tax deductible. Paying more than the minimum payment will help to get the credit cards paid off quicker. For instance, if there are two credit cards. One has a payment of $250, and the other one has a payment of $200. Once one of those credit cards is paid off, put the entire monthly payment amount of $450 on the card left.

It will dissolve the debt quickly. Not only will this help the outgoing monthly amount, but it will help the utilization ratio. A person’s borrowing power is best when their credit cards are less than 30 percent of their available limit.

Move Forward and Learn To Save

Most people live paycheck to paycheck. According to a study, only about 28 percent of consumers have enough money to sustain them through a financial hardship. It is recommended that everyone pay off any credit card debt and put money in savings. Try not to rely on credit cards in emergencies, but rather, build a strong savings account. Debt-free living can be obtained. Cut back on expenses, and refinance, consolidate, and renegotiate terms on current bills.

The biggest problem for most people is they don’t know how to live within their means. Start small to save big. Try packing a lunch instead of buying out. This can save a possible $200 a month. Learn to buy in bulk, and freeze items for a rainy day. There are numerous things that can be done to have a big impact on one’s budget. It takes discipline and planning, but it can be done.